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In this paper, we show how Model-Based Design can be applied in the development of a hybrid electric vehicle system. The paper explains how Model-Based Design begins with defining the design requirements that can be traced throughout the development process. This leads to the development of component models of the physical system, such as the power distribution system and mechanical driveline. We also show the development of an energy management strategy for several modes of operation including the full electric, hybrid, and combustion engine modes. Finally, we show how an integrated environment facilitates the combination of various subsystems and enables engineers to verify that overall performance meets the desired requirements.